How To Setup a Payment Plan With the IRS

Tax Resource

Written by Tax Relief Systems

Last Updated

Tax Attorney with MacBook making calculations

If you owe money to the Internal Revenue Service, it’s important to begin taking steps to reach a resolution. Paying back taxes is integral to getting your personal finances back on track and reaching your long-term financial goals. If you can’t pay what you owe in its entirety, the best course of action is to establish a payment plan with the IRS. Here are some of the most important things that you should know about the process of applying for an IRS payment plan and how to structure an agreement that will give you a practical, manageable way to remedy your situation.

IRS Payment Plan Programs

There are a lot of different reasons why people fall behind with tax payments, and it’s a very widespread problem. Last year, the IRS released statistics about unpaid taxes revealing that Americans owed approximately $133 billion dollars in back taxes as of 2021. All of the back taxes represented in this figure are actively accruing interest and penalties, making the aggregate value of dues even more staggering over time.

The IRS urgently needs to collect these unpaid tax obligations, but it has to go about collections practically and strategically. Obtaining a massive amount of judgments that people can’t afford to pay ultimately won’t benefit the IRS. Just like any commercial creditor, the IRS needs payments, not just judgments.

Obtaining judgments takes time and money. Investing a lot of limited resources on collections and without actually collecting those dues does as much harm as good.

Understandably, the IRS is willing to work out installment agreements with people. This solution benefits both parties. It allows the department to enforce tax liabilities while enabling individuals to satisfy their obligations and resume making on-time payments.

IRS payment plan solutions have helped millions of people to solve problems with back taxes. Under a typical plan, payors make monthly payments of a fixed or gradually increasing amount until they have paid their tax bill in addition to any penalties and interest. Entering into a payment agreement averts defaults or delinquencies, and it brings payors back in good standing with the IRS. A plan may also make it possible to pay less than what you currently owe and still eliminate your debt to the IRS in its entirety.

Applying Now

Paying taxes late is going to cause you to incur additional penalties, and you may also have to pay interest on outstanding dues. Procrastinating about paying overdue taxes or just ignoring the problem can result in a number of financial and legal issues. In addition to making the total amount of your obligation to the IRS even greater than it already is, not paying the IRS what you owe could result in judicial action.

When the IRS takes legal action against you, its recourse could involve garnishment of your wages, liens against property, or account freezes. Furthermore, the IRS could seek a judgment against you requiring you to make payments that you simply can’t afford. Failing to comply with an order can result in civil penalties or criminal liability.

An IRS payment plan is a proactive way to avoid these types of issues. It gives you the opportunity to work out repayment terms that are going to be manageable for you. This outcome is better than a judgment against you that causes extreme financial hardship. In effect, an installment agreement lets you be an active participant and exercise some measure of control in reaching a resolution rather than leaving everything in the IRS’ hands.

Getting to work on setting up a payment plan right away can prevent the problem from snowballing. Beginning attempts to correct the problem within a reasonable time may make the IRS more receptive to repayment negotiations.

Applications and Terms for Installment Agreements

You can initiate the process of applying for a payment agreement with the IRS through an online application portal. Submitting an application suspends collection attempts and liens. If the IRS ultimately approves a plan, collection attempts will cease so long as an individual keeps up with their installments.

Before you submit any filings electronically, it may be prudent to review your situation with a professional tax advisor. Professional assistance can make the process of applying for an IRS payment plan easier to navigate.

The Amount You Agree To Pay

If the IRS asserts that your bill is higher than what you calculated when you did your taxes, it is imperative that you review their calculations. A tax advisor can affirm whether there are any valid discrepancies between your filings’ calculations and your tax bill. Addressing mistakes in the IRS’ assessment of your liabilities or amending any mistakes that you made when preparing your taxes could save you from having to pay more than you actually owe.

The IRS may agree to accept a reduced amount as payment in full as an offer in compromise if you are able to demonstrate that it will be impossible or impractical for the department to attempt collecting the total amount that you currently owe. It might be possible to reduce the amount that you owe if you have experienced a serious financial hardship resulting from events such as a job loss, wage decrease, or medical condition. An incidence of hardship could also discharge penalties and appreciated interest.

Short-Term Payment Plans

A short-term IRS payment plan has a timeframe of 180 days or less, so this may be the right route if you will be able to pay outstanding dues, interest, and penalties over the course of six or fewer monthly payments. You are eligible to apply for a short-term repayment plan if you owe less than $100,000. If the IRS approves your application, you will not have to pay an additional administrative fee.

Long-Term Payment Plans

You are eligible to apply online for a long-term repayment plan if you owe less than $50,000. There is typically an application fee to apply and set up a payment agreement. If you owe more than $25,000 you must consent to Direct Debit withdrawals from your bank account at fixed intervals.

The IRS encourages payors who owe less than $25,000 to consent to automatic withdrawals by offering a $31 fee for automated monthly payments. The fee for an agreement without Direct Debit transfers is $130.

If you opt to handle payments on your own, you may submit them directly from your bank account, send physical checks, or pay by credit or debit. Be aware that paying with a credit card carries a processing fee.

Professional Help With Your IRS Payment Plan Strategy

When you are dealing with the IRS, it is advantageous to have an advocate who will help you assert and protect your rights. If you represent yourself, what you don’t know could hurt you. Working with a service provider that has extensive experience negotiating with the IRS can give you more effective, meaningful bargaining power. You can be confident about taking the right steps to pursue an IRS payment plan and choosing the best plan option for your individual situation.

Professional assistance could make a big difference in the outcome of current or future legal action against you, and it might substantially reduce the total amount that you have to pay to eliminate tax debt. Ultimately, working with a tax relief service provider that has helped numerous people in situations similar to your own could help you reduce your total liabilities, avoid extraneous penalties, and pay down your debt in a manageable timeframe.

If you owe more than $10,000 to the IRS, take action today. Contact Tax Relief Systems to learn more about whether you may qualify for a payment plan. Our representatives can work with you to review eligibility for relief programs, plan installment agreements, and help you get started with a payment plan that will put you back on track.

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